There are many financial considerations involved with having a family. There’s the bigger grocery bill, the need for a bigger home, and, if you’re planning ahead wisely, the need for a family life insurance policy. So, what does life insurance look like when you have a family of five?
Well, there are many policy types to choose from, as you can expect with any life insurance product. Depending on your individual family’s needs (and those of your budget), you can pick-and-choose the coverage options that best serve you all.
Let’s take a look at some of the different life insurance options available for families, so you can choose the one that meets your needs.
Term vs Permanent Coverage
The first thing to determine when considering a life insurance policy for your family is whether you need term or permanent life insurance coverage.
Term life insurance covers you (or your entire family) for a period of time… a term. If no one has passed away by the time the policy expires, though, the premiums paid over the years are essentially just lost. You’ll also need to renew the policy at that time, if you want to continue with life insurance coverage.
Permanent life insurance, on the other hand, is a product that stays with you. You lock in your policy in the beginning, and it sticks with you for life, whether you choose a whole or universal life coverage (the difference between the two lies in the premiums and the flexibility of the policy). However, permanent coverage is considerably more expensive than term coverage, making it a bigger financial investment… one that is much more difficult to budget for in families with children.
One type of life insurance that parents might consider is a joint policy. These come in two flavors: first-to-die and second-to-die. Often a universal (permanent) life product, joint life insurance policies can be a more cost-effective way for parents to protect both parties without buying separate life insurance.
The first-to-die policy is exactly what it sounds like: the payout on the policy is made when the “first to die” passes away. The remaining spouse’s coverage will then end, but the life insurance benefits are paid. This type of policy is beneficial for families with small children, as it will replace the lost income and help provide for childcare when one of the two parents suddenly passes.
If the surviving spouse also wants life insurance, their options will depend on the life insurance company. Some companies will offer that the policy continue in effect for the surviving spouse, often at a reduced rate. However, other companies will terminate coverage for the remaining spouse, especially if it was a first-to-die policy.
If that is the case, they will then need to purchase an additional policy in their name. This will allow their children another death benefit, in the case that their remaining parent also passes away.
Second-to-die, on the other hand, is a bit different. These policies only pay out after both of the insured parties pass away. This makes them poor products to choose if you are concerned about daily expenses, a mortgage, or debts that would be due (especially if you have young children). Since this policy will wait until your surviving spouse also passes away, it could be many decades before your family will see a penny of the coverage.
While joint policies are a great way to save a bit of money on premiums while also protecting both parents, they have a few special considerations. For instance, there’s always the issue of divorce. While no one wants to consider the possibility, it’s important to at least think about when buying a joint permanent life insurance product. If you choose to purchase one of these with your spouse, you may want to ensure that there is a divorce rider included. This will allow you to split the policies off separately, in the case of marital dissolution.
Joint life insurance can be a good choice for some families, especially those with small children. However, if you’re looking for a product that’s less complex or allows you to also protect your children with life insurance coverage, you might be better off with family riders.
Riders are special add-ons to life insurance policies, allowing you to “upgrade” your coverage in different ways. Some of these riders, for instance, are designed with your family in mind.
For instance, many term and whole life policies will offer spousal riders. These will allow your spouse to hold the same amount of life insurance coverage as you, the primary insured, but for a lower rate than if they were to get their own separate policy.
There are also riders for children. These are usually only a few dollars a month, but offer coverage in case any of your children were to pass away. The benefit is usually limited to $10,000-$20,000, but can make a huge difference for a grieving parent who now has final expenses to cover. Also, the children’s rider typically covers all of your children for one flat premium, meaning that you don’t need to pay this additional fee for each child in your family.
Utilizing riders on a term life insurance policy, a family of five could easily get life insurance coverage for one lower monthly cost. Between the premiums for the primary insured, a spousal rider, and an umbrella children’s rider, the annual cost is often much less than if multiple policies were purchased.
Some insurance companies will offer special products called family policies. These are similar to the type of coverage you could build using term life and additional riders, but they are pre-designed with families in mind.
With a family policy, you can get coverage for both parents and all children, all for one monthly rate. The cost of these policies will often remain level for a number of years, then increase annually each year for the duration of the term chosen. Family coverage policies are often flexible, too, allowing you to change your coverage limits based on your family’s changing needs and dynamics.
Many of these family insurance policies include joint-life coverage for the parents, which then continues for the surviving spouse if the other were to pass away. This is an excellent benefit, as the remaining parent won’t need to then search for a new policy on his or her own.
Whether you’re looking for ready-made family life insurance coverage, or simply want to build your own with a base policy and riders for your spouse and children, the right product is out there. By determining the needs of your family, the type of coverage that bests suits you all, and the budget you can afford for premiums, you can buy life insurance that provides you all with peace of mind.
If you have questions about the type of coverage you should buy, the options available to your family of five (or four, or seven, or thirteen…), and how much you can expect to spend, give us a call. We have licensed life insurance agents who are ready to walk you through the entire process, and even offer free quotes for coverage.